Interior design activity in the third quarter of the year was by and large mixed, with some sectors and some regions faring better than others. That trend is expected to continue throughout the fourth quarter, based on recent surveys of designer sentiment.
Rising costs of products and materials, along with growing uncertainty about the health of the economy, have put a damper on client demand for new projects and larger projects.
On the whole, residential firms experienced only a modest decline in activity during the summer. Designers participating in the 2019 Q4 Houzz Renovation Barometer survey reported a two-point drop in both new projects and project inquiries for the third quarter, to 65 and 62, respectively.
All regions maintained positive growth. Activity was strongest in the Southwest, Mountain states, South Atlantic, and New England regions. The Northeast Central and Pacific regions, however, each recorded a seven-point decline for the quarter.
Likewise, the 2019 Q3 AIA Home Design Trends Survey found an upward trend in demand for residential services, with a 6.1-point increase in billings and a near eight-point jump in project inquiries heading into the third quarter. The association’s Architectural Billings Index (ABI) for September showed that business conditions at firms with a residential specialization improved in the latter part of the third quarter as well.
Commercial firms, which were doing well in the first half of the year, have seen some tapering off in demand in recent months. The American Society of Interior Designers’ most recent Interior Design Billings Index (IDBI) report for July 2019 shows billings overall have been declining for the past four months after reaching their highest point in two years in March, dropping from 60.8 to 49.6.
Commercial and medium- to large-sized firms have slowed most. This reflects a similar trend in architectural billings during the same period, as activity has fallen off in the commercial and industrial sectors while multifamily and single-family sectors have experienced gains.
The continuing tariff wars have led to price increases and uncertainty about future pricing, creating unease among would-be clients, says ASID. The AIA states that 52% of its respondents indicated that since the first of the year they have had at least one project put on hold, delayed, scaled back, substantially redesigned, or cancelled, largely due to budget issues.
Nearly half of firms (47%) cited client nervousness about proceeding, with 29% due to financing problems and 19% related to tariff or trade concerns. Respondents to the Houzz Barometer survey also mentioned labor shortages as contributing to decreased demand, delays and a shift toward smaller projects.
Designers as a group are perennially optimistic. Those taking part in the Houzz Barometer Survey remained confident that business activity would stay about the same in the fourth quarter as it had in the third quarter, despite indications of softening demand.
That confidence varied across regions, however. Designers in the Southwest, New England, and South Atlantic regions were substantially more optimistic than those in other parts of the country, especially those in the Northeast Central and Pacific regions.
Perhaps reflecting the current weakness in commercial projects, ASID noted that the IDBI six-month expectation index plunged to its lowest point ever, 46.5. Some panelists commented that their firms or those of colleagues were not receiving any new project requests or inquiries. Those readings were taken in August, for business activity in July, and could have been affected by the vacation season, weather-related problems, and news coverage of economic turbulence.
The weak housing market, unresolved trade disputes, natural disasters, and the approaching holiday season likely will generate additional headwinds for design firms as the year draws to a close. Collectively, the industry is trending toward positive but modest growth. For individual firms, the outcome will vary more widely by specialty and region.
